In a surprise move, the Reserve Bank of India (RBI) hiked the repo rate and other key policy rates by 40 basis points (100 basis points = 1%) on May 4, 2022. This is good news for fixed deposit (FD) investors as interest rates on FD investors are likely to continue rising. However, a hike in policy repo rate is bad news for borrowers, especially home loan borrowers. This is because a hike in policy repo rate means a hike in home loan interest rates.
If you are an existing home loan borrower, here is how your home loan EMI is likely to rise for different home loan amounts.
Existing interest rate is taken from State Bank of India (SBI) website for a non-woman salaried borrower having CIBIL score in the range of 750-799. Interest rates are for Regular SBI Term loans.
What do RBI rules say about home loan interest rates?
Effective from October 2019, the RBI has revised the rules related to home loan interest rates. As per the new rule, banks are required to link their home loan interest rates to an external benchmark. Banks can choose any one of the external benchmarks from the following:
a) RBI’s repo rate
b) Government of India 3-month Treasury bill yield published by Financial Benchmarks India Pvt. Ltd. (FBIL)
c) Government of India 6-month Treasury bill yield published by FBIL
d) Any other benchmark interest rate published by FBIL
The final interest rate that will be levied on the personal or retail loan will be arrived as follows:
External benchmark rate (Any one of the above) + margin + risk premium.
Further, banks are required to review and revise the interest rates on loans linked to external benchmarks at least once in every three months. Thus, any hike in external benchmark rate will lead to a hike in home loan interest rate as well within three months.
